News, Views and Analysis

Dirty doings at the CRA

This is a story about two rules of law: one for the rich and one for the rest of us. It’s about a corrupt, politicized agency that is morally little better than the scammers who phone you around tax time and demand money with menaces.

Prime Minister Trudeau clipped the vulture’s wings—just a bit—almost as soon as he won office. Bill Morneau, the Minister of Finance, was given his marching orders upon appointment, and so was Diane Lebouthillier, the Minister of National Revenue. A noted part of their mandate was to:

…allow charities to do their work on behalf of Canadians free from political harassment, and modernize the rules governing the charitable and non-for-profit sectors. This will include clarifying the rules governing “political activity,” with an understanding that charities make an important contribution to public debate and public policy. A new legislative framework to strengthen the sector will emerge from this process.

The CRA is supposed to be arms-length from government. But under the Conservatives, harassment of progressive charities with lengthy, expensive audits became the order of the day. $13.4 million was set aside by the previous regime precisely for this purpose, in what was to be an on-going activity of the CRA. Outside observers were struck by the political one-sidedness of the audits, which began in 2012 following government complaints about environmental “radicals.” CRA took on its task with gusto, and its bias was evident from the start. Even a small group of birdwatchers found itself in the CRA’s gunsights.

To date, the grand Liberal promise to end these abuses has proven to be more sound than substance. While new audits have been put on hold, no fewer than 24 political audits of targeted progressive charities are continuing. Unbelievably, some of these groups have been under audit for up to four years, the clear intention being to drain their time and resources until they fold. As an example of CRA’s duplicity in all this, the Canadian Centre for Policy Alternatives is being investigated for alleged “bias,” while far-right groups like the Fraser Institute have been left alone.

Far worse in terms of its effects on Canadians as a whole, however, are the recent revelations about a shady deal cooked up between high-level CRA officials and wealthy clients of the well-known accounting firm, KPMG. Literally billions of dollars are involved.

First, a little background.

The former government made considerable noise about putting an end to offshore tax avoidance by the wealthy, announcing a Stop International Tax Evasion Program in 2013. You might have thought this would mean beefing up CRA ranks to do the complex investigations required, but you’d be mistaken. In 2012, that government began to slash the jobs of tax-evasion auditors. And this just went on and on.

Tax evasion by the rich, with fewer investigators to stop it. What could possibly go wrong? As noted, we aren’t talking chicken-feed here, either: an estimated $170 billion has been squirrelled away offshore. That’s a heck of a lot of tax avoidance, to put it mildly. A lot of missing revenue that could be put to good use on behalf of ordinary Canadians.

The Conservative government also “partnered” with the Chartered Professional Accountants of Canada, bringing them on board as an “advisor” to the CRA. But the problem is, CPA Canada was also representing KPMG against the CRA.

To be fair, the CRA really seemed to be struggling to do its job, going after KPMG for allegedly assisting wealthy Canadians to avoid paying taxes. KPMG, meanwhile, fought off demands from the CRA that it produce relevant documents, and managed to stall the investigative process for more than two and a half years.

The conflict of interest here seems glaring. It doesn’t exactly help the CRA for the previous government to have pushed an adviser on them who was fighting them in court. According to one poll, a majority of Canadians wanted the RCMP to investigate this scandal. I wonder what the polls would say now.

The CRA investigation did bear some fruit, and the culprits have to cough up the years of back taxes they owe. But they caught a juicy break: no penalties, no criminal charges, and modest interest. This top-level decision, which appears to be a violation of the agency’s own rules, has caused consternation within the CRA itself. KPMG, meanwhile, seems to have walked away unscathed.

Would you or I be offered a cushy little arrangement like this if we were caught in an out-and-out tax scam? That’s a rhetorical question, by the way.

Let’s have a little more of Mr. Trudeau’s sunlight, now that the CRA rock has been turned over. So far, very little has changed with respect to on-going CRA malfeasance. This had better not be the final chapter of the tale.